Over the last several weeks, I have shared stories about clients who have used their self-directed IRAs to invest in creative options and accumulate wealth and profit with their retirement funds.
This is yet another example of a creative strategy with a self-directed IRA.
Les owns a used car lot with a 70 car inventory. Fonda, his private lender, Floor Plans the lot. This means that Fonda’s IRA puts up the money for Les to acquire used cars through auctions. Without Fonda and her IRA doing private lending, Les would have to pay much higher fees to buy the vehicles, and the fees would be passed onto the consumer.
Fonda’s self-directed IRA holds the title to each car Les purchases. When Les sells a car, hopefully at a profit, Fonda’s IRA gets paid and she releases the vehicle title to the purchaser.
Floor planning can also be used for mobile homes, boats and other large ticket items. These are then later sold individually to consumers with a financing contract or for cash.
Without floor planning, Les would not be able to have as many cars on his lot, which would inhibit his business.
New car dealerships raise their capital through banks and other large institutions. It is more challenging for used car dealers, the buy here pay here type car lots, to raise the money to buy in bulk. Les knew Fonda for years before he approached her with the idea of Floor Planning.
There are others that don’t floor plan, but will instead finance a car for a used car dealer directly at a discount. They are actually buying the car paper and the borrower is making the payments. This is a one car at a time process as the IRA may not have the money to lend to the dealer for Floor Planning, but is comfortable financing a car with the IRA.
As with any other investment, due diligence is important here. One must make sure the car he is financing is the actual car for sale. As with other creative strategies, this does come with risk. That being said, many people feel comfortable with this investment because they either have an existing relationship with the used car dealer, or they saw the actual car. They also know the law in the state they are lending with their IRA. In most cases, the dealer has the ability to repossess the vehicle should the borrower default, thus protecting the collateral.
IRA Innovations does not recommend any investment and we strongly encourage our clients to seek professional advice before they decide to use any alternative strategy. When a client is comfortable with what he can do with his IRA, he can see his return on investment soar! Fonda’s yield is infinite. She has made more on the interest paid to her from Floor Planning than the money she initially invested in her IRA.
The choice, as with any other self-directed IRA investment, is yours!